Sarbanes Oxley Controls At Work
In 2002,the government of United States passed a Public company accounting reform and investor protection act which is also known as SOX or Sarbox. Sarbox was passed keeping in mind the various scandals affecting the health of the business sectors. These scandals were becoming prevalent, and affecting some of the major business corporations like Enron, Peregrine system, WorldCom and Tyco International. Sarbanes Oxley controls all kinds of falsified accounting statements and keeps a check on the financial working of the business organization.
In the year 2002 accounting statements of many major business corporations was found to be recorded with few misleading entries and information. It happened that some of the trusted executives of these business organizations resort to creative or artificial accounting covertly to show incorrect profits. Often business corporations resort to such a practice to protect themselves from various government organizations like SEC, which act as watch dog to the company accounts statements. According to the corporate management laws every company accounts have t undergo an audit session and this audit session makes sure that business organizations do not publish false accounting statement. Transparency is very important for public as well as private business organizations. Sarbanes Oxley controls was proposed by Michael G. Oxley and it was on his name that this act is called as Sarbanes-Oxley.
This proposal was accepted by the members of parliament and while the final stamp of approval was from the George w. Bush, who stated that Sarbanes Oxley controls will have far-reaching affects on the business practice of United States.
Sarbanes Oxley Controls is system that falls in two categories. The first or the preliminary level includes the preventive controls. Preventive level makes sure that there are no loop holes in the levels of accounting statements. For instances, the delegation of responsibility to different individual so that while invoice is issued by one, the payment statement is prepared by the second and the checks are signed by the third. The second stage of the Sarbanes Oxley Controls includes, detective controls. This stage includes surveillance and detection of irregularities and errors in the accounting statements for instances, the reconciliation of cash account every month. Although the above mentioned stages roughly acquaint to you to the working of Sarbanes Oxley Controls, specifically the act of Sarbanes lays down 11 titles, which are a mandatory terms for the financial statements of any business organization. Prior to Sarbanes Oxley controls, auditing firms surveyed the financial statements and performed the task of consulting as well. However, consulting function was far more lucrative than the auditing function and so there was a lack of interest in auditing, which in turn brought down the quality of financial auditing. Since financial condition of a company is responsible for keeping up the goodwill of the company, the negligence at financial auditing did tremendously affect the relation with the clients. Every business is established for a specific motive of earning profits and it is often found that business organizations indulge in bad financial practices to achieve their goal. Sarbanes Oxley controls makes sure every business organization works in accordance with government laws to achieve its goal, which adds to the growth of the country as well.
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